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Beginning in 2014, state Medicaid programs—which provide health coverage to low-income Americans will be expanded to cover all individuals under age 65 with incomes up to 133% of the federal poverty level ($14,400 for an individual or $29,300 for a family of four in 2010). The new law creates a uniform Medicaid eligibility level and income definition across all states and eliminates a prohibition that prevented states from providing Medicaid coverage to adults without dependent children except under a waiver of federal rules. Undocumented immigrants are not eligible for Medicaid regardless of their income, and legal immigrants who have resided in the U.S. for less than five years are also not eligible, though states have the option of extending Medicaid coverage to legal immigrant children and pregnant women who are in the 5-year waiting period. The Congressional Budget Office has estimated that 16 million people will gain coverage through the Medicaid expansion by 2019.

Beginning in 2014, tax credits will be available to U.S. citizens and legal immigrants who purchase coverage in the new health insurance exchanges and who have income up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four in 2009). To be eligible for the premium tax credits, individuals must not be eligible for public coverage—including Medicaid, the Children's Health Insurance Program, Medicare, or military coverage—and must not have access to health insurance through an employer. (There is an exception in cases when the employer plan does not cover at least 60 percent of covered benefits on average or the employee share of the premium exceeds 9.5% of the employee's income.)

The premium tax credits will be advanceable and refundable, meaning they will be available when an individual purchases coverage and will be available regardless of whether or not an individual owes any taxes. The premium tax credits will vary with income and are structured so that the premium an individual or family will have to pay will not exceed a specified percentage of income, ranging from 2% for those with incomes up to 133% of the poverty level (about $14,400 for an individual) to 9.5% for those with incomes between 300 and 400% of the poverty level ($32,490 to $43,320 for an individual).

Starting in 2014, most people will be required to have health insurance or pay a penalty if they don't. Coverage may include employer-provided insurance, coverage someone buys on their own, or Medicaid.

Several groups are exempt from the requirement to obtain coverage or pay the penalty, including: people who would have to pay more than 8% of their income for health insurance, people with incomes below the threshold required for filing taxes (in 2009, $9,350 for a single person and $26,000 for a married couple with two children), those who qualify for religious exemptions, undocumented immigrants, people who are incarcerated, and members of Indian tribes.

The penalty for people who forego insurance is the greatest of two amounts: a specified percentage of income or a specified dollar amount. The percentages of income are phased in over time at 1% in 2014, 2% in 2015, and 2.5% starting in 2016. The dollar amounts are also phased in at $95 in 2014, $325 in 2015, and $695 beginning in 2016 (with annual increases after that). The Congressional Budget Office projects that 3.9 million people will pay the penalty in 2016. The total penalty for the taxable year will not exceed the national average of the annual premiums of a bronze level health insurance plan offered through the health insurance Exchanges.

Health insurance plans will provide documents to people they insure that will be used to prove that they have the minimum coverage required by law.

Exchanges are new organizations that will be set up to create a more organized and competitive market for buying health insurance. They will offer a choice of different health plans, certifying plans that participate and providing information to help consumers better understand their options.

Beginning in 2014, Exchanges will serve primarily individuals buying insurance on their own and small businesses with up to 100 employees, though states can choose to include larger employers in the future. States are expected to establish Exchanges--which can be a government agency or a non-profit organization--with the federal government stepping in if a state does not set them up. States can create multiple Exchanges, so long as only one serves each geographic area, and can work together to form regional Exchanges. The federal government will offer technical assistance to help states set up Exchanges.

The Secretary of Health and Human Services will define the benefits health plans have to cover, which includes a number of service categories specified in the health reform law: ambulatory services, emergency care, hospitalization, maternity and newborn care, prescription drugs, mental health and substance abuse services, rehabilitative services and devices, labs, chronic disease management, and oral and vision care for children. The scope of benefits will be the same as that provided under a typical employer health plan.

The minimum benefit requirement applies to new plans sold to small businesses (those with up to 100 workers) and individuals beginning in 2014, but not to so-called "grandfathered" coverage that people already have or to coverage provided by larger employers.

The health reform law contains a provision that requires private insurers to continue dependent coverage of children until age 26. Department of Health and Human Services regulations specify that a young adult can qualify for this coverage even if he or she is no longer living with a parent, is not a dependent on a parent's tax return, or is no longer a student. Both married and unmarried young adults can qualify for the dependent coverage extension, although that coverage does not extend to a young adult’s spouse or children. For employer plans that were in place prior to March 23, 2010, young adults can only qualify for dependent if they are not eligible for another employer-sponsored insurance plan. Insurers that do not offer coverage to dependent children will not be required to offer this coverage to young adults.

The extension of dependent coverage to age 26 will go into effect on September 23, 2010, but plans will not be required to comply with the regulations until the first plan year beginning on or after that date. However, some insurers have said that they will begin to make the extension of dependent coverage available prior to September 2010 for young adults who would otherwise lose coverage.

Regulations also state that young adults who gain dependent coverage under the health reform law cannot be charged more for coverage than similar individuals who did not lose coverage due to the end of their dependent status. Young adults newly qualifying as dependents under the health reform law must also be offered the same benefits package as similar individuals who were already covered as dependents.

Currently, some states require that private insurance extend coverage to young adults in their twenties. These state requirements do not extend to self-funded insurance plans, but the new federal health reform law is designed to apply to these self-funded plans.

Starting in 2014, all health insurers will have to sell coverage to everyone who applies, regardless of their medical history or health status. At that time, insurers will not be allowed to charge more to individuals with pre-existing conditions, nor will they be able exclude coverage of those conditions from the insurance plans they sell.
The law provides new protections for children with pre-existing conditions that will take effect on September 23, 2010. Insurers will not be permitted to deny coverage to children due to their health status, or exclude coverage for pre-existing conditions.

While adults will not have the same protections as children in the years prior to 2014, some adults may be eligible for a temporary national high-risk pool open to all U.S. citizens and legal residents who have had trouble buying insurance due to a pre-existing condition and have been uninsured for at least six months. This federally subsidized coverage, officially known as the Pre-existing Condition Insurance Plan, will provide temporary coverage until the broader coverage provisions take effect in January 2014. States can operate their own high-risk pool or have the federal government carry out the program. The federal government began accepting applications for enrollment in their high-risk pool on July 1, 2010, with coverage beginning on August 1, 2010. Premiums for this coverage will be based standard premiums for the general population, and therefore will not be higher due to the health problems faced by the high-risk pool beneficiaries. In addition, the amount that premiums can vary based on age will be limited. The high-risk pool insurance must cover 65% of medical costs and the maximum cost sharing is set at the Health Savings Account limits ($5,950 for an individual and $11,900 for a family of four).

The health reform law includes a number of provisions that reform the insurance market and encourage small businesses to offer health insurance. Coverage offered in the small group market and in the exchanges established for small business to purchase insurance, must meet minimum benefit standards; allow premiums to vary only by age, tobacco use, and geographic location; be subject to reviews of premium increases; and comply with other consumer protections.

The provisions to encourage small firms to offer coverage apply only to firms under a certain size. Fewer than 25 Employees:
Beginning in 2010, business with fewer than 25 full time equivalents and average annual wages of less than $50,000 that pay at least half of the cost of health insurance for their employees are eligible for a tax credit. The full credit is available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. The credit is capped based on the average health insurance premium in the area where the small business is located.

The tax credit will be introduced in two phases. For tax years 2010 to 2013, eligible employers may receive a tax credit of up to 35% of the employer's contribution toward the employee’s health insurance premium. For tax years 2014 and later, eligible small businesses that purchase coverage through the state Exchange may receive a tax credit of up to 50% of the employer’s contribution toward the employee’s health insurance premium. Employers are eligible to take the tax credit for two years. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 25% of the employer’s contribution toward the employee’s health insurance premium for tax years 2010 to 2013, and up to 35% for tax years 2014 and later.

Fewer than 50 Employees: Businesses with fewer than 50 employees are exempt from penalties faced by larger employers that do not offer coverage. The penalties for larger employers (50 or more employees) do not go into effect until 2014.

Fewer than 100 Employees: Small businesses with fewer than 100 employees will be able to purchase coverage through Small Business Health Options Program (SHOP) Exchanges beginning in 2014. These state-based exchanges are intended to allow employers to shop for qualified coverage and more easily compare prices and benefits. In 2017, states will have the option to allow businesses with more than 100 employees to purchase coverage through the SHOP Exchanges.

The health reform law does not require employers to provide health benefits. However, it does impose penalties in some cases on larger employers (those with 50 or more workers) that do not provide insurance to their workers or that provide coverage that is unaffordable.

Larger employers that do not provide coverage will be assessed a penalty beginning in 2014 if any one of their workers receives a tax credit when buying insurance on their own in a health insurance Exchange. Workers with income up to 400% of the poverty level are eligible for tax credits. The employer penalty is equal to $2,000 multiplied by the number of workers in the business in excess of 30 workers (with the penalty amount increasing over time).

In some instances, larger employers that offer coverage could be subject to penalties as well. If the coverage does not have an actuarial value of at least 60% -- meaning that on average it covers at least 60% of the cost of covered services for a typical population -- or the premium for the coverage would exceed 9.5% of a worker's income, then the worker can obtain coverage in an Exchange and be eligible for a tax credit. For each worker receiving a tax credit, the employer will pay a penalty of $3,000 up to a maximum of $2,000 times the number of workers in excess of 30 workers.

Starting for the 2012 tax year, W-2 forms provided by employers (in the beginning of 2013) will show employees how much their health insurance costs. However, the reporting is for informational purposes only; employees will not be taxed on this amount. The requirement was originally set to go into effect for the 2011 tax year, but implementation was delayed by the Internal Revenue Service.

A separate provision of the health reform law creates a new tax on so-called "Cadillac" insurance plans provided by employers. Beginning in 2018, plans valued at $10,200 for individual coverage or $27,500 for family policies will be subject to an excise tax of 40% on the value of the plan that exceeds these thresholds. The tax will be levied on insurers and self-insured employers, not directly on employees.

The threshold amounts will be increased for inflation beginning in 2020, and may be adjusted upwards if health care costs rise more than expected prior to implementation of the tax in 2018. The thresholds are also adjusted upwards for retired individuals age 55 and older who are not eligible for Medicare, for employees engaged in high-risk professions, and for firms that may have higher health care costs because of the age or gender of their workers.

The health reform law gradually reduces the amount that Medicare Part D enrollees are required to pay for their prescriptions when they reach the coverage gap. In 2010, Part D enrollees with any out-of-pocket spending in the coverage gap will receive a $250 rebate. Beginning in 2011, Part D enrollees will receive a 50 percent discount on the total cost of their brand-name drugs in the coverage gap, as agreed to by pharmaceutical manufacturers. Over time, Medicare will gradually phase in additional subsidies in the coverage gap for brand-name drugs (beginning in 2013) and generic drugs (beginning in 2011), reducing the beneficiary coinsurance rate in the gap from 100 percent to 25 percent by 2020. In addition, between 2014 and 2019, the law reduces the out-of-pocket amount that qualifies an enrollee for catastrophic coverage, further reducing out-of-pocket costs for those with relatively high prescription drug expenses. In 2020, the level will revert to that which it would have been absent these reductions.

The 2010 health reform law reduces payments to Medicare Advantage plans, gradually bringing them closer to the average costs of traditional Medicare. Beginning in 2011, the law freezes the maximum county-level payments to plans (called "benchmarks") and in 2012, begins to reduce payments, based on the Medicare costs in the county relative to other parts of the country. In addition, the law reduces the amount plans are permitted to keep when bids come in below the benchmark (known as "rebates"), which achieves savings for Medicare but also reduces the amount available to plans to provide extra benefits. Some Medicare Advantage plans will begin to receive bonuses in 2012 based on quality ratings.

The law also includes new consumer protections. Plans will be subject to new rules that limit cost-sharing that can be imposed on enrollees for certain services. Medicare Advantage plans will also be required to maintain a medical loss ratio of at least 85 percent, restricting the share of premiums that Medicare Advantage companies can use for administrative expenses, including profits.

The effect of these payment reductions is expected to vary across counties and by firm. Companies offering Medicare Advantage plans may respond to these payment changes in several different ways, depending on the circumstances of the company, the location of their plans and their historical commitment to the Medicare market. Plans will continue to be required to provide all benefits that are covered by traditional Medicare, but may charge higher premiums, increase cost-sharing, reduce their network of providers, or reduce "extra benefits" such as dental care or eyeglasses.

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